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China's inflation soars to a 28-month high

China's inflation soars to a 28-month high prompting worries it will spread beyond food costs.

BEIJING, CHINA (DECEMBER 11, 2010) REUTERS - China's Inflation soared past forecasts to a 28-month high in November and was showing signs that it may spread beyond food costs, the Chinese National Bureau of Statistics spokesman said on Saturday (December 11).

"In November, the consumer price index rose by 5.1 percent year-on-year. the price grew by 4.9 percent in cities and 5.6 percent in rural areas. Food prices went up by 11.7 percent while non-food prices increased by

A day before the release if the data, China's central bank raised lenders' reserve requirements for the third time in a month to sop up some of the excess cash in the economy that is driving prices higher.

But economists predict inflation problems may not be solved so soon.

"Inflation might become a more serious issue in the future. In my view, China is entering a high inflation era. From other countries experience we can see relatively higher inflation always comes along with high growth and currency depreciation so China will experience a long-term inflation era. Price rises will be seen in sectors like real estate and asset prices, prices of raw materials, commodities, agricultural products and agricultural inputs will also rise rapidly," Hu Xingdou, Professor of Economics and China Issues at Beijing Institute of Technology.

The government has promised to take strong action to clamp down on speculation in the commodity markets and to punish anyone found to be manipulating food prices.

But on the streets, people said they were already feeling the pinch.

"Recently, the prices have gone up, the government is worried but the vendors are delighted," said Beijing resident Mr Chen.

Many retired city dwellers worry they will not have enough money to pay doctor bills if food prices keep rising.

"For people like us who have retired, with low salaries you can afford to eat as long as you don't get sick, if you have to see a doctor you soon won't be able to afford to eat," she said.

The country's central planning agency has said the November's figures were at a peak and they were predicting the pace of increase will fall to below five percent this month.

In November, industrial output also rose, rebounding from a mild dip in October and outpacing market expectations. Capital spending also topped forecasts.

Retail sales increased 18.7 percent from a year earlier, showing China is slowly continuing its shift to a more consumption-powered economy.